Q4 2020 SalMar ASA Earnings Presentation - Recording N-7266 Kverva Feb 25, 2021 (Thomson StreetEvents) -- Edited Transcript of SalMar ASA earnings conference call or presentation Thursday, February 25, 2021 at 9:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Gustav Magnar Witzoe SalMar ASA - Co-Founder, President & CEO * Olav-Andreas Ervik * Trine Sæther Romuld SalMar ASA - COO & CFO ================================================================================ Presentation -------------------------------------------------------------------------------- Gustav Magnar Witzoe, SalMar ASA - Co-Founder, President & CEO  -------------------------------------------------------------------------------- Good morning, everyone, and welcome to the presentation of the fourth quarter 2020 results for SalMar. My name is Gustav Witzoe, and I'm the CEO in SalMar. Today, I will take you through the highlights and strategic updates. Our CFO, Trine, will take you through the operational and financial update. And also with us, we have the CEO of SalMar Ocean, Olav-Andreas, who will give you a closer insight in our ocean farming strategies. But before we continue, I would like to take you -- take a moment to reflect on a historical milestone in the history of SalMar. The company, which was founded, the 8th of February 1991, is celebrating its 30 anniversary and can look back on 3 decades of fantastic results from 11 employees, on a small island in Central Norway and a total production volume of 800 tonnes to where we are today, with presence in 8 countries, 1,700 employees and a combined production volume of 195,000 tonnes, where 163,000 tonnes is from our operation here in Norway. The SalMar we see today is a result of a unique journey created via a group of unique people. With the postulate, what we do today, we do better than yesterday has been the core of the development. The main idea has been the same since 1991, minimal environmental footprint while maximizing the value creation of the salmon. This has led to a development, where we step-by-step has taken control of a larger part of the value chain. At the same time, we have taken a greater social responsibility as an employer for the environment and local communities as a producer of healthy and sustainable food and as a driving force for innovation and development within the salmon farming industry. The building of new knowledge, fish welfare, increased complexity and technological development is keywords. That illustrates the development of the SalMar farming industry over the last 30 years. The key for SalMar in the same period has been to invest heavily in our employees and take all our collective experience into taking the company and the industry even further. The example are many, and the willingness to constantly improve has been great throughout our organization. I would, therefore, like to take this opportunity to thank all the great people in SalMar, our partners and supporters, who have all contributed to make this adventure possible. All the way from the beginning in 1991 to where we are today as one of the world's largest aquaculture companies, I'm very proud of what we have achieved. The passion, dedication and culture we have in SalMar is unique and has been the driving force to get us up to this position. I have given us the -- it has given us the ability to challenge, start a school, see opportunities and, at the same time, have ability to take them. The seafood industry has been now become one of the Norway's largest industries. That is equally sustainable as long as we produce on the salmon's terms sustainable and in harmony with nature. This is in the heart of all of our operation, both domestic and abroad. This is also true in respect of our development of aquaculture in the open oceans. In addition, offshore farming will open in various new areas across the globe for sustainable salmon farming. SalMar has invested 30 years of operational experience in the development of offshore farming, from Ocean Farm 1 in 2017 to the design of the updated Ocean Farm 2 and a no for the Open Ocean Smart Fish Farm. In 2019, we started SalMar Ocean to spearhead our offshore farming strategies. It is therefore a perfect fit that we, in the quarter, where we celebrate our 30 anniversary, also give you more details about our offshore development, a development that will be a catalyst for growth in the coming 30 years. Both Olav-Andreas and I will return on this topic later in this presentation. But first, a closer look at the numbers and highlights for the full year 2020 and fourth quarter. 2020 has been a challenging year marked by great uncertainty, not only for the aquaculture industry, but for all of us. With a global COVID pandemic, a strict disease preventive measures affecting our daily lives and how we conduct our business. Nevertheless, SalMar has been able to deliver result on the same level in 2020 as we did in 2019. This is the result of strict strategic and operational focus, strong biological and operational performance and our ability to focus on the solution. The strength within our organization and the culture that have been built up over 30 years really comes to show in demanding times. It is all the employees in the entire organization, who have achieved the great result. Together, we have made it happen. That makes me confident that SalMar is in a position where we can continue to face challenges to develop and to push ourselves and the industry even further. The fourth quarter has been a challenging quarter with low salmon prices, but despite this, SalMar delivers satisfactory results. In Norway, we harvested 40,000 tonnes and delivered operational EBIT of NOK 433 million with a margin of NOK 10.84 per kilo. Including Icelandic Salmon, we harvested 43,600 tonnes in the fourth quarter with a total operational EBIT of NOK 414 million with a margin of NOK 9.50 per kilo. Central and Northern Norway delivers satisfactory results due to good biological and operational performance. Low salmon prices and challenging market situation is impacting the results from sales and processing. Positive cost development in Iceland, but low salmon prices give a negative result. We keep our guiding for 2021 unchanged. The Board of Directors proposed a dividend of NOK 20 per share for 2020. And to give you more details, I will now give the word to our CFO, Trine. -------------------------------------------------------------------------------- Trine Sæther Romuld, SalMar ASA - COO & CFO  -------------------------------------------------------------------------------- Thank you, Gustav. As usual, I will start with the Farming Central Norway. We harvested 20,900 tonnes in the quarter with an operational EBIT of NOK 271 million and EBIT per kilo, NOK 12.96. Central Norway continues the trend by delivering solid result as a result of long-term strategic and operational focus, which has resulted in good biological and operational performance. The volume in the period comes from Autumn 2019, which has had a stable biological development and where most of the volume was harvested at the end of the period. To ensure optimal and fastest possible utilization of the increased maximum allowed biomass capacity that we bought in August, the harvest volume at the end of the year was slightly reduced. In quarter 1, we will continue to harvest from autumn 2019 and, at the same time, we will start harvest of spring 2020 generation. The biological status of the efficiency is good, and we expect a similar cost level and slightly lower volumes in quarter 1. Note that the production tax of NOK 0.40 per kilo will be included from quarter 1. In 2021, we expect to harvest 107,000 tonnes from Central Norway. Then Farming Northern Norway. We harvested 19,100 tonnes in Northern Norway in the quarter with an operational EBIT of NOK 156 million and EBIT per kilo NOK 8.18. Northern Norway continues the positive development with a good biological performance and a reduction in cost level. Spring 2019 has been the main contributor of the harvest volume in the period accounting for 80%. This is a generation, which has shown strong biological performance, and thereby, also low-cost level. Harvest from Autumn 2019 started at the end of the period. That's a generation, which has shown good biological performance, but a slightly higher cost level compared with spring 2019 and mostly due to higher harvesting costs. The biological status is good, and strong growth during the autumn has made it possible for us to utilize the increased maximum allowed biomass. In quarter 1, we expect lower volume and slightly higher cost level where we will continue harvesting from autumn 2019 generation. Same comment as from Central Norway, that we will have additional tax -- production tax starting from quarter 1 on NOK 0.40 per kilo. We expect to harvest 56,000 tonnes in 2021. Sales and Processing. Sales and Processing delivers an operational EBIT of NOK 73 million in the quarter. The reduction compared to previous quarter is due to challenging market characterized by high market uncertainty and low selling prices. Contract share for the period was 20%, which gives a positive contribution due to the low salmon prices. Some comments to the entire year 2020. Despite the challenging market in 2020, Sales and Processing has delivered strong results due to strong operational performance in 2020. And if we look into the figure, we also see that the EBIT is more than doubled compared to 2019. Our strategic focus on local processing strengthens the results. Combined with higher volume to harvesting and processing plants and solid operational performance, this has given strong margin from our harvesting and operating activities and spot sales. Back to quarter 4. The contract share in the quarter is around -- quarter 1 2021 is around 30% and for the 2021, the contract share is around 20%. I'd also like to highlight that the construction of InnovaNor is continuing as planned. And from January 1, we also have the full management team in place. We look forward to the summer when we can start utilizing the facility and process our own fish locally in Senja. Icelandic Salmon. On Iceland, we harvested 3,600 tonnes in the quarter with an operational EBIT negative NOK 20 million, which gives EBIT per kilo negative NOK 5.51. As indicated in the previous quarterly presentation, Iceland delivers a negative result due to the low salmon prices. In addition, I would like to highlight that the result for this quarter is negatively impacted by one-off costs and costs related to the private placement and listing process, which in total accounts for NOK 3.70 per kilo. However, this is a strong positive cost development since we are harvesting from the 2019 generation, which has shown significantly improved biological performance compared with previous generation. So we have more than EUR 1 per kilo lower reduction cost level from the fish that we harvested out from in this quarter, which is also in line with what we said in the private placement in October. The 2019 generation has accounted for the entire volume in the period, and we will continue harvesting from this generation also in quarter 1. 2020 as a year has been a challenging year for Icelandic Salmon with biological issues in the beginning of the year. We take with us the lesson learned into 2021, where the biological status is significantly improved compared to last year. In quarter 1, we expect slightly higher volume and similar cost level. Guiding for the entire year is kept unchanged at 14,000 tonnes. As you may have noticed earlier this week, we have received positive signals from the Icelandic Planning Agency for new licenses in Ísafjarðardjúp of 10,000 tones MAB. The application will now be evaluated by Icelandic Food and Veterinary Authority and the Environmental Agency of Iceland before final approval and verification. This is also in line with what we communicated in the listing process in October. So I think the key message from Iceland is really that we are on track and things takes time. Scottish Sea Farms harvested 6,400 tonnes in the quarter and delivered an operational EBIT of NOK 76 million. That gives NOK 11.87 per kilo. We have a positive cost development and positive contribution from contract sales, which give good results in the period. The harvest volume for the full year 2020 was slightly reduced as a result of harvesting of smaller fish from 2 sites, and at the same time, the company choose to build biomass into 2021. The biological status in all areas is good. And in quarter 1 2021, we expect a lower cost level. And guiding for the year is kept unchanged at 36,000 tonnes. Moving over to the financial update. Some few comments. I will start with a comparison from the previous quarter. First, on the Norwegian part, which had a reduction of EBIT per kilo of NOK 8.32 compared with the previous quarter. As already commented, the low salmon price and slightly lower price achievement explains the reduction. And if you also include Icelandic, it's a small difference if you take the same comparison at group level. Then over to the group profit and loss. Some comments to the P&L for 2020 compared to 2019. As you can see, we have higher revenue due to higher volume and a good price achievement despite lower spot price. Operational EBIT is only reduced to 2%. Our result, we are pleased to win as a challenging year with high market uncertainty, as also commented by Gustav earlier today. Fair value adjustment is negative due to lower forward price in the calculation compared to the same period last year despite higher biomass in the sea. Income from associates, that's mainly Scottish Sea Farms in both 2020 and '19. Other financial items is negative due to change to hedge accounting. And in 2019, we had a gain when Icelandic Salmon went from an associate to a subsidiary. All in all, group EBIT per kilo is only reduced with NOK 1.42 kilo, even the NASDAQ price is 3.64 level, and that is due to lower cost and improved price achievement. Balance sheet. Some comments comparing the balance sheet to end of quarter 3. Investments are progressing according to plan. Standing biomass is higher, both year-on-year, but also quarter-to-quarter. Net interest-bearing debt, including leasing, has increased with NOK 1.68 billion and is now at NOK 5.8 billion. And one major explanation is to payment of dividend in quarter 4. But in total, still, we have a solid financial position with an equity share of 49.9% and NIBD, including leasing versus EBITDA, at 1.53. And if we exclude leasing, we have a ratio of 0.83. Some more comments to the change in net interest-bearing debt. We started to the left with NIBD, including leasing, at 4.1 at the end of quarter 3. We have the EBITDA over the period, NOK 648 million. And then you can see the major explanation here is taxes paid, its CapEx investment and its dividend, as already explained. And thus, we will end with NOK 5.8 billion in NIBD including leasing at the end of the quarter. To secure our financial flexibility, we have strengthened our credit facilities in the beginning of 2021. This, we have done by refinancing our existing facilities while, at the same time, strengthen our focus to develop the industry in an even more sustainable manner. We have entered into a 5-year sustainability linked revolving credit facility with a limit of NOK 4 billion, which has 4 sustainability KPIs linked to itself where we get higher-margin if we do not succeed and lower margin if we succeed. We have chosen to focus on 4 of the most important KPIs, where everyone pulls us in a more sustainable direction. We shall increase the survival rate. We shall reduce the economic feed factor. We shall increase the local processing in Norway. And last but not least, we shall reduce our greenhouse gas emissions. At the same time, we have also increased the overdraft facility to NOK 1 billion. With this, we have -- I've come to an end of my part, and I will give the floor back to Gustav. -------------------------------------------------------------------------------- Gustav Magnar Witzoe, SalMar ASA - Co-Founder, President & CEO  -------------------------------------------------------------------------------- SalMar has a strong history for 30 years, but we are constantly working to be even better to improve in all aspects of our operations. This is also why we are spearheading our ocean farming strategies. Ocean Farming 1 was the first step in such a development. The offshore strategy is based on the experience and competence we have built up over 30 years, with the aim to supplement and strengthen to replace our farming operation of today. SalMar's business is based on the salmon terms. Since the beginning, we have always been looking for the optimal farming sites with minimal footprint, and that ensures the best fish welfare. We know that good biology gives good economy, and therefore, farming sites with optimal temperature and current are crucial. The Norwegian coast is the home for the Atlantic salmon with ideal conditions. But so far, we have only had to -- had the equipment to use a small fraction of these areas. SalMar decided to do something about this when we started our offshore journey back in 2012. Ocean Farm 1 was the first step in opening up new areas and blending a journey from coastal to more exposed areas. With Smart Fish Farm, we will be able to take the step all the way out in the open ocean, releasing a huge potential of sustainable farming in the natural habitat of the salmon. SalMar Ocean is the company, which is responsible for our offshore strategy. There are several workflows, which are retail to realize our strategy ambition offshore. We strengthened our team. I'm glad that our CFO, Trine Sæther Romuld, has taken on the existing and central role as CFO and Director of Strategy in SalMar Ocean. Trine will be central in the future development of SalMar Ocean. And at the same time, she will continue in the work as a group CFO in SalMar until a new CFO is in place. The recruitment of a new CFO is already underway, and the plan is for Trine to take up her new position in SalMar Ocean around 1st of September 2021. To give you more details on the strategy, ambition within offshore farming, I will give the word to Olav-Andreas Ervik, our CEO of SalMar Ocean. (presentation) -------------------------------------------------------------------------------- Olav-Andreas Ervik,  -------------------------------------------------------------------------------- Thank you, Gustav, and good morning, everyone. Gustav has already touched upon the reason why we wanted to go offshore. We wanted to get out into the areas, which are less affected by the tidal currents in the sustainable areas with more stable temperature and more stable flow, basically in the natural habitat of the salmon. Based on this, we developed Ocean Farm 1, same as mergeable offshore unit. With this, we have established ourselves in exposed coastal areas and gained valuable operational experience. Here, we are more affected by a more undirectional coastal current than by the tidal current. And it has given us the confirmation we were looking for, which shows that the salmon thrives -- grows and that this technology fits very well for the salmon. We want to take this a step further out into the open ocean. Out there, the temperatures are even more stable during the year between 7 and 12 degrees, and the currents are even more stable and unndirectional. At the same time, the currents give a natural barrier to the operations along the cost, ensuring optimal biosecurity. We want to utilize these conditions with a unit that based on the same technology as Ocean Farm 1, but which is adapted to the condition we need out there in the open ocean. We have now produced 2 cycles in the Ocean Farm 1, growing salmon from 230 grams to 5 kilos. And in total, we have harvested 10,000 tonnes. This has given us good answers and valuable experiences. We must say that the biological results, we have been particularly positive. We have experienced fantastic growth, high survival rate and low sea lice levels in both production cycles. This gives us the confidence and strengthens our belief that these areas are optimal for salmon production in combination with the Ocean Farm technology. Based on this, we have decided to further develop Ocean Farm 1 into our mark to -- that incorporates all the lessons we have from the first 2 production cycles and start a serial production of these units for farming in exposed areas. We are now close to the end of the pre-engineering phase and are already in contact with both national and international shipyards about construction. Smart Fish Farm will be a game-changer in terms of realizing the potential that lies in salmon farming, ultimately the open ocean. As we already mentioned, we want to produce in a natural habitat of the salmon. To find these areas, we have to go out into the open ocean, where we, since 2018, have been working with modeling and surveys, which has results in identifying 2 areas, about 15 nautical miles of the coast of Central Norway. Only these 2 areas together have a significantly large area than the entire area for the Norwegian aquaculture industry uses today in coastal waters. When we go out there, we need a technology that is adapted to the environmental conditions and the natural forces we encountered out there. Based on this, we have developed and designed Smart Fish Farm, which makes it possible to operate out there more independent than we do today. We have now sent a site application to the authorities, and the project has entered into a detailed design phase. And we will be ready for an investment position in the autumn, if the site and permission to produce the applied volume fall into place. Also here, we are already in dialogue with both Norwegian and international shipyards. Assuming a decision in the second half of 2021, we will be in operation from quarter 2 in 2024. We are working towards serial production of both Ocean Farm and Smart Fish Farm technology, exposed an open ocean, respectively. That said, the decision and start of such serial production will depend on approval from the authorities and that the regulatory framework is in place. Based on the experiences with Ocean Farm 1, we will be able to achieve a very competitive production cost. In Ocean Farm, the first unit, when fully utilized, we will come down to a production cost of NOK 35 per kilo and in a serial production of NOK 33 per kilo. In Smart Fish Farm, with the first unit in full utilization, we will be at NOK 37 per kilo and in a serial production of NOK 34 per kilo. These estimates are based on full utilization and today's cost structure. Basically, it is the result of optimal natural conditions combined with the design and technology, which gives the good biological results, which, in turn, makes the very competitive measures against both traditional and land-based farming. With serial production of these units, the investment will give a significant positive ripple effects to the entire value chain in the industry and not at least the supplier industry. This technology will not only be reserved for Norwegian waters, but will also have a great potential globally where we find the same optimal conditions for salmon production. In many of these areas, such as the East and West Coast of the United States, we will also be able to produce closer to the major markets than we do today. We know that most of the future growth in seafood must come from aquaculture. By realizing the potential that lies in the natural conditions in the ocean, we will be able to make salmon production even more sustainable on the terms of the salmon, also closer to the markets. To sum things up, we are on the brink of a new area in aquaculture. Our goal is develop a sustainable offshore farming on the salmon terms. The areas we are talking about exist both in Norway and internationally. But most important thing is that they have the same optimal biological conditions, which facilitates good growth and fish welfare. By utilizing these fantastic natural conditions, there will be no need to supply energy to maintain or produce a production environment for the salmon. We are now working on data design, and we'll be ready to decide on construction as soon as we have been allocated a site and received permission to produce the volume described in the application. With this, we have a strong salmon culture that is built on 2 fundamental operating principles: minimal environmental footprint while maximizing the value creation of the salmon we produce. As a foundation, we also have the postulate that Gustav mentioned in the introduction, what we do today, we do better than yesterday. And this attitude serves as our foundation when we now move on to secure our position and continue to be the leader in development of offshore farming. Therefore, it is also important that we build an organization that is rigged to handle the further growth. We are grateful that Trine has chosen to start in SalMar Ocean to strengthen our financial expertise and to be a vital contributor together with the rest of the team, joining all of us on the exciting journey the company has started on. -------------------------------------------------------------------------------- Gustav Magnar Witzoe, SalMar ASA - Co-Founder, President & CEO  -------------------------------------------------------------------------------- Thank you. The plans that Olav-Andreas has presented here today affect our entire value chain. Therefore, it is more important than ever that we, through strategic and operational focus in the entire value chain, make sure that we have an optimal setup that support our traditional and offshore strategies. We shall have a sustainable value chain, always on the salmon terms from raw to finished product. Everything we do is done with the salmon and the customer in focus. We want to give the salmon the best possible upbringing in pristine natural condition to ensure supreme quality and -- to the end consumer. This is only possible with a strong culture and fantastic employees, who have their experience, see opportunities and have the willingness to go the extra mile. This, through always, keep SalMar in a full position. It is the strategy and operational focus in the entire value chain that is the basis for the large investment we now make in a robust platform for future growth. We have spent a long time talking about our offshore strategy, but I would like to highlight some important elements that we are working on in other parts of our value chain, people and culture. Even in a challenging time with COVID-19 pandemic, we must ensure that everyone is seen that it's safe to go to work. This means that we must comply with all their measures and impose to reduce the possibility of infection while maintaining the position and energy for what we are working with the salmon. We will continue to take social responsibility, and we will ensure that we continue to focus on the solution, and that everything we do today will be done better than yesterday. On smolt, our smolt expansion on Senja is well underway, and we expect to soon make a final investment decision on a new smolt facility in Central Norway. Coastal farming. Our offshore investment does not come on the expense of our coastal farming activities on the contrary. We will continue to ensure an even more optimal utilization of our location, and our MAB always on the salmon terms. Industry and sales. InnovaMar is moving forward as planned, and we are looking forward to the early summer this year when the plant will be ready for the first fish. At the same time, the upgrade of Vikenco is now completed. With both of this project in place, we have increased our VIP capacity, which means that we can offer the market the products, the demand to an even greater extent. The period we are in now with high market uncertainty has shown us how important it is to have a flexible local processing capacity. Iceland. We have learned our lesson from last year in Iceland. Going forward, SalMar will continue to contribute to Icelandic Salmon with the common goal of building a sustainable future-oriented salmon farming industry in Iceland. On the outlook. Going forward, we will continue with our strong operational focus on the terms of the salmon. What we do today, we do better than yesterday. SalMar want to strengthen our position as a technology leader in the aquaculture industry in order to be an important contributor to sustainable growth. This means a dedication, focused on all our activities, including our new offshore units. We will continue to have focus on the thing we can impact and do something with. Good financial results come from good biological conditions and operations on the salmon terms. The Board of Directors proposed a dividend of NOK 0.20 per share for 2020. We are experiencing a good biological status in the sea, both in Northern and Central Norway and in Iceland and also in Scotland. Guiding for 2021 is unchanged. Expect slightly lower volume in Q1, with costs on the same -- at the same level. Contract share for Q1 is at 30% and 20% for the whole 2021. We expect low supply growth in 2021. SalMar is well positioned to handle a demanding market with strong operational and financial flexibility. We have a positive view on the future for salmon. Our job is to implement the measures that strengthens us today and, at the same time, will make us even stronger going forward. We focus on the solution, not the problems. With this, we have come to the end of our presentation, and we would like to thank you all who have been watching. Our next quarterly presentation will be in May. Until then, we hope all of you stay safe and healthy and eat a lot of salmon. On behalf of Trine and Olav-Andreas, thank you for your attention.